View full sizeBob Levey photoThe MBS Companies, founded by Michael B. Smuck of Metairie, did not follow through on its plan to purchase this Houston-area apartment complex, which it planned to rename Yellowstone Ranch. The investors' money was used for other purposes.

Michael B. Smuck, founder of the now-bankrupt MBS Realty Investors Ltd., stood before U.S. District Judge Lance Africk and apologized in a courtroom packed with both supporters and angry local investors who said they lost their life savings because of Smuck's deceit and fraud.

"I made a terrible mistake in judgment," said Smuck, 64. "Now, I have lost it all."

Before its financial collapse in 2007, MBS companies had invested in 60 apartment complexes, mostly in Texas, and had a portfolio of $1 billion. The mail fraud case against him focused on one property in Houston known as Briar Meadows.

In May 2004, Smuck solicited investors to purchase Briar Meadows, and he later sold it for $3.4 million. Rather than distribute the profits to the investors, he used the money to pay debts unrelated to the property. He then mailed a misleading letter to investors that never mentioned the property had been sold, giving the impression that the property was still operating.

Retired Slidell attorney Richard Regan said he invested heavily with Smuck's properties, and despite receiving some money back, he is still out a total of $1.2 million. "That money is just missing, gone, no explanation," Regan told the judge. "I think restitution is possible here, if he's motivated."

Kenner resident John Kochera said he and his wife have worked long hours as independent Realtors, and the cash they invested with MBS was hard-earned. Kochera said now, at age 75, he has yet to retire. "This gentleman deserves to pay," he said.

MBS went bankrupt in 2007, and most of its assets were seized by banks or liquidated.

Scores of investors later filed lawsuits over their losses, alleging the company misappropriated funds and neglected its deteriorating apartments. Complaints filed in Texas described collapsed balconies, wet ceilings, no hot water, rats, dead animals and overgrown grass at MBS properties, according to lawsuits.

Smuck pleaded guilty to mail fraud in 2010 under a plea agreement with prosecutors, but his sentencing hearing was repeatedly delayed. Smuck's attorney said that MBS got into trouble after Hurricane Katrina when insurance companies denied the company's business interruption claim.

Attorney Ralph Capitelli said Smuck has spent the past two years battling the insurance companies in court to get some of those claims paid, and he turned that money into restitution payments. As for his personal finances, the attorney said, Smuck is broke.

Under the plea deal, Smuck agreed to a 30-month prison sentence and to paying restitution to two separate groups of investors: those who invested in Briar Meadows and another group who invested in a second Houston-area property that was slated to be named Yellowstone Ranch.

Capitelli said lawyers on the case agreed that a minimum of $3.3 million total was owed to the investors, and of that, Smuck has already repaid about $2.5 million. Federal prosecutors, though, argued that Smuck owed more to Yellowstone Ranch investors.

Africk ruled that the question of restitution beyond the $790,000 in his sentencing order must be litigated in civil court because the financial issues are complex. The judge said he understands that many people have been "very badly hurt both financially and otherwise."

Investors have said most MBS deals had a minimum buy-in of $50,000. They would get quarterly distributions of at least 8 percent and sometimes as high as 15 percent and would cash out when complexes were sold. The investments worked so well that many poured their money back into the next deal. But in 2007, the payments stopped.

Commercial real estate broker Ed White, of Ed White & Associates Inc. in Metairie, first partnered with Smuck on property investments in 1995, eventually bringing in hundreds of investors.

In court Thursday, White accused Smuck of keeping bogus books and making false reports to investors while he let the properties fall into disrepair with many apartments going unoccupied. "It was greed," White said.

Smuck said he made the wrong choices under pressure as his business collapsed, but he insisted he has been accused of some things he didn't do.